Why is there demand for consumer credit?

Cast your mind back to the early 1800s: the birth of modern consumer credit, when a group of English tailors came together to discuss their customers’ debts and how they could be eased.

Since then, the credit boom of the 20th century and the current information age have catapulted the market exponentially, with credit now being used in lots of positive ways for a variety of applications. Over the past 25 years alone, the sum of personal loans has increased markedly, with a total of £191 billion being borrowed in 2017.

According to the Bank of England, consumer credit – which accounts for personal loans, overdrafts, credit cards and, of course, retail finance – was expected to be at its highest level since the Brexit vote over the past three months. What’s more, PwC says that British consumers have more credit confidence now than at any point since its survey began in 2009 and the proportion of consumers worried about their ability to make repayments has continued to drop.

People are borrowing more than ever to finance their everyday purchases and banks, recognising the benefits of consumer credit, are willing to facilitate this, so long as it’s used responsibly. But what’s driving this demand?

Retail finance

When it comes to retail finance – for example, spreading the cost of purchases over a given period of time – having such options available allows consumers to access the things they need when they need them, while giving the retail sector a boost.

The demand for consumer finance is demonstrated by the fact that 65% of customers that have used a retail finance platform say they only made the purchase because finance was available. Meanwhile, 59% would have bought elsewhere if it weren’t available and 72% would have postponed their purchase. As a result, it’s not uncommon for retailers to see a 40% increase in average order values for finance orders and an increase of up to 60% in conversion rate after introducing a finance option.

Powering possibility

Put simply, consumer credit enables people to access things they wouldn’t have been able to otherwise. The fact is that we don’t always have the funds available to pay for things when we need or want them. In these instances, as long as the applicant has the means to repay the loan, the offer of a payment plan can be a sensible and convenient way for them to achieve their objectives. And it doesn’t have to just be about material things – of course, it’s useful to be able to get your hands on a new laptop when you need one, or a nice flat screen TV when you’re moving into a new home, but finance can open so many more doors than that.

For example, being able to spread the cost of an engagement ring would allow someone to pop the question when it’s the right time and avoid them having to save up and delay such an exciting relationship milestone. Consumer finance can also be applied to sectors like education and healthcare. Someone may find themselves needing a specific qualification to pursue their dream career – with consumer finance, they can access that training without having to worry about putting their life on hold for a couple of years while they save. And on an even more serious note, if we take the scenario of a pet-owner facing a hefty bill for life-saving surgery on their furry friend, the offer of a payment plan could genuinely be the difference between life and death.

An attractive lifestyle choice

Not only is the broadening of opportunities a major reason for the growing demand for consumer credit; it’s also being driven by a generation of consumers for whom monthly payments better suits their lifestyles. Even if you do have savings or can otherwise access a lump sum of cash, it may not always be preferable to part with a big chunk of money in one go.

One sector where this is especially common is travel. Payment contracts for holidays usually last for 10 or 12 months, coming out as a monthly payment, just like rent and bills. More and more people are adapting to this mindset and prefer treating holiday payments as another manageable outgoing, rather than something to stress over in January – the busiest time for buying holidays. The length of the contracts also means that, once it’s paid off, you’re ready to arrange the following year’s trip without doubling up on payments.

Want to find out how you can tap into this market, help customers reach their goals and boost your sales? Get in touch.